Thursday, September 16, 2010

"It Signals Problems"

Alan Greenspan spoke yesterday at the Council on Foreign Relations:

“Fiat money has no place to go but gold,” the former Fed chairman said at the Council, according to economist David Malpass, who quotes Mr. Greenspan in one of Mr. Malpass’ emails on the political economy. Mr. Malpass writes that the former chairman of the Federal Reserve’s board of governors was responding to a question in respect of why gold was hitting new highs.

Mr. Greenspan replied that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities “simply don’t pan out,” as Mr. Malpass characterized Mr. Greenspan. “He’d concluded that gold is simply different,” Mr. Malpass wrote. ... Said the former Fed chairman: “If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”

Ben Bernanke, responding to a question of mine that was submitted by Sen. Jim Bunning last December (pg. 24 here):

What does the surge in gold mean to you? At what price level would it begin to worry you, if it doesn't already? Does gold have any impact on the Fed's policy deliberations?

[G]old is used for many purposes. Movements in the price of gold are determined by changes in the demand for gold for its various uses and changes in supply conditions. Therefore, assessing why gold prices have recently risen and whether the increase is consistent with fundamentals is very difficult. Accordingly, it is also difficult to specify a particular level of the price of gold which, if exceeded, would indicate particularly worrisome developments. As also mentioned earlier, the Federal Reserve looks at a wide array of indicators of market sentiment and inflation expectations. Among those indicators is the price of gold, but for the reasons just noted, its movements are often harder to interpret than those of some of the other indicators. Nonetheless, we will continue to monitor the price of gold going forward.

Someone needs to get these two together...soon.


Anonymous Goldhorder said...

What? Gold acting like money? Who would have ever thought such a thing could happen? I am certain it is just a bubble though once people regain their faith is US global leadership and fiat dollars. That time is right around the corner as our "betters" really understand what is going on. Speaking of betters.... Who was Greenspan giving this little bit of advice to? The CFR you say? I thought they were our "betters". Uhhh-Ohhhh. I read the other day that china has 100 billion less in US treasury bonds since late 2009. I thought they were at least holding steady. Anybody know who's making up the difference? How come China is less effected by this economic crisis than we are? When America catches a cold the rest of the world gets a fever... Right?

9/16/2010 4:56 PM  
Anonymous KAIMU said...


It was quoted during the recent BOJ Yen intervention that this is the largest BOJ intervention since 2004. That inspired me to go over to the FOMC Meeting Minutes and try to find out what happened back in 2004 from the insider perspective. I started first with the Dec 14, 2004 FOMC Meeting Minutes transcripts and I read through the DINO KOS presentation and it seemed that their focus was not the Yen but the Euro and the huge slide in the USD. The Euro then was very strong. Fast forward to today ans we are sitting here on the weekend wondering if the IMF will save Ireland after agreeing to save Greece a few months ago. Also this week while Greenspan spoke at the CFR Soros was saying that if China had not bought up Euros and EU bonds the EURO would have collapsed. According to him the "line in the sand" was at 1.20! What country will crumble next under its own debt. I wonder if the IMF will save California!

What struck me in the FOMS Minutes was not what I found in the Minutes but the CHARTS in the Meeting Materials section. One chart in particular by DINO KOS showed TOTAL BANK MBS ASSETS. MBS as we all know in hindsight was a complete fraud, but in 2004 it was still all the rage and according to the chart MBS held in US Banks grew from a 7% low in 2001 to 10% by Dec 14th, 2004. There it was starring them all in the face that 10% of banks assets were tied up in toxic fraud. Now ten percent may not seem like much but when you consider that bank reserve requirements on transaction deposits at the height of the CREDIT BUBBLE in 2007/2008 was only 3% it was a disaster waiting to happen. It all works until it doesn't indeed. Of course everyone, including the banks thought real estate prices would go UP forever! But the average US citizen did not have the US Congress in his or her pocket like the banks did. That made all the difference in the World and so the banks losses were recapitalized with record CEO bonuses to boot, while the SubPrime schmucks stood in line for a HAMP and those US Taxpayers who were prudent paid the bill.

To show you how bad the toxic paper is now all you have to do is look at the three MAIDEN LANEs ... THese were the US FED NY vehicles used to pay JP Morgan and AIG inflated prices for their toxic MBS and CMBS. Look at the latest financial report for June 30th and you will see that the S&P has 98% of total assets rated as BB+ and lower. In layman's terms over at S&P and Fitch BB+ is described as "non-investment grade speculative" and "highly speculative", essentially JUNK! Yet if you go back to Dec 31st MAIDEN LANE assets rated BB+ and less were only 33% of the portfolio. The majority of the portfolio was AAA and AA back then. If you then look at FAIR VALUE(FV) it has only gone down 15% since Dec 2008, while 98% is rated JUNK of the portfolio is rated junk. ACCOUNTING MAGIC!!! And Bernanke is in a quandary as to why the price of GOLD keeps going up ... Here is a clue Ben ... We're tired of your monetary BS!

Its a race to the bottom for the floating fiat currency system of today. I would only debate the word "floating" ...

9/18/2010 5:04 AM  
Anonymous Goldhorder said...

Lol... Good stuff Kaimu.

9/18/2010 7:39 PM  
Anonymous Goldhorder said...

Good article... I'd hyperlink but I'm on my phone

9/18/2010 7:45 PM  

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